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Experimental Free-Trade Zone Opens in Shanghai

SHANGHAI — China opened a new type of free-trade zone here on Sunday in a bid to test financial changes that the government said could eventually spread to other parts of the country.

The new zone, which has the backing of the State Council, the Chinese cabinet, was first announced last July. It is expected to allow banks and other businesses within its boundaries to experiment in areas that are tightly controlled in China, including loosening regulation of interest rates and full convertibility of nation’s currency, the renminbi.

By opening the new test zone in Shanghai, a city of 20 million and one of the country’s major financial centers, the government appears to be signaling its determination to ease restrictions on investment while also trying to press ahead with plans to open up its financial system and internationalize its currency, analysts say.

The government has not yet given a detailed outline of how the pilot zone — which covers 29 square kilometers, or about 11 square miles, of ports and logistics areas — is expected to operate. But on Friday, the State Council said foreign and private companies would soon be allowed to invest freely in banks, shipping ventures, travel agencies and health and medical insurers that are set up in the experimental zone.

Restrictions are also being lifted on foreign investment in some telecommunications services and on the production and sale of video game consoles.

The creation of a free-trade zone in Shanghai comes as China’s new leaders try to grapple with how to restructure a fast-growing economy that favors state-run enterprises and restricts foreign investment and the free flow of capital.

The value of real estate in the area near the experimental zone has shot up in recent months, along with the share prices of publicly listed companies operating in or around the zone. But the leaders of multinational corporations have been pressing the government for more details, and it remains unclear how it will interact with other parts of China.

“There’s a lot of interest, but few people know the details yet,” said Stephen Green, a Hong Kong-based economist at Standard Chartered Bank.

But Yao Wei, a Hong Kong-based economist at Société Générale, said in a report this week that the signs were encouraging, and that creating the zone was reminiscent of the bold experiments China made in the previous decades.

“The overarching theme of all the reform in the 1980s and 1990s was, simply put, liberalization,” Ms. Yao wrote. “Local experiments in strategically important cities not only served as policy signals of reform commitment but provided guidance as to the path of upcoming changes.”